CoverNote September 2023 issue

September 2023

Flood impact flows on for the insurance industry

New Zealand's professional association representing the interests of insurance brokers, risk managers and consumers.

IBANZ gives strength and support to Members enabling them to better meet their challenges and opportunities.

We achieve this through staying involved with Government activity and legislative reform impacting the insurance industry, and more specifically fire and general brokers and their clients.

We focus on providing high quality presenters who speak on a variety of fire and general and business topics under our Continuing Professional Development (CPD) offering to support Members deepen their knowledge and broaden their skills.

The IBANZ Code of Professional Conduct provides the public with assurance that Members act in a professional and ethical manner. It includes a disciplinary and complaints committee to review concerns that may arise.

Ph: 09 306 1732

www.ibanz.co.nz

Welcome to the spring edition

medical emergencies, 29,014 false alarms, 4,703 structure fires, 13,750 vegetation or “other” fires and 689 call outs for hazardous substances.

We support a well-resourced fire and emergency services that can respond as required. We also, without question, believe it is critical that first responders and other operational team members (both paid and voluntary) receive the support needed to help them face the personal challenges their roles create.

Given the breadth of the services delivered and the benefit being available to everyone in this country we believe that, rather than levying the shortfall solely on those who buy insurance, alternate options such as a greater contribution for public good from the government was appropriate.

A suggestion we put forward was to return to FENZ the GST collected by the government (over $80 million) on the FENZ levy. Instead, an announcement was recently made confirming the levy will increase by 12.8% from 1 July 2024.

Our lead story focuses on the lasting impacts of the year’s weather events as insurers re-evaluate the risk, their exposure, and the coverage they are willing to offer.

Of the 100,000 claims received by insurers that are members of the Insurance Council of New Zealand, a third had been settled by the start of June. Central and local government decision-making, and land categorisation, is contributing to delays for some.

Climate Change Minister James Shaw has tasked a select committee with investigating the relocation of communities in high-risk areas to help improve resilience for the future.

Analysis and modelling of the events is expected to create change as insurers review their exposure to flood and weather-related risk. Widespread increases in premiums have already been felt as policies renew.

As well as providing support to their clients with the delays and changes they face, brokers are also looking closely at wellbeing, given the additional pressure these large-scale events create for their teams.

With an election looming, I was expecting a quieter quarter than was delivered on the legislation front.

Earlier this year the Department of Internal Affairs consulted on increasing the Fire and Emergency New Zealand (FENZ) levy by 12.8% to meet an expected funding shortfall over the next 2 years.

As you will no doubt be aware, FENZ is in high demand, attending 85,425 incidents as noted in their latest annual report. These included 9,200 motor vehicle collisions, 13,869

This will see an even greater percentage of FENZ revenue being funded exclusively by those purchasing insurance. For the year ending 30th June 2022, this equated to 96% ($638M) of the FENZ total revenue of $662M.

For many (particularly those with non-residential property for which the levy is uncapped) this will be a material increase in the costs they associate with insurance. As noted in our submission, we believe this will contribute to increasing levels of underinsurance.

Concurrently, there has been a lot happening with the Conduct of Financial Institution Amendment Act which was passed 29th June 2022 and is due to come into force on March 31 2025.

This Act creates the need for Financial Institutions (including insurers) to be licenced and will bring into force obligations on them to ensure that consumers are treated fairly.

Like the financial advice regime, the FMA will be the insurers’ regulator and, following consultation, it has recently published guidance on both intermediated distribution and prohibited incentives to clarify the intention of the legislation.

There is, however, some uncertainty over CoFI’s future, given National’s recent announcement that they will repeal the legislation if they form the next government.

Fingers crossed for more settled weather for the remainder of 2023.

Melanie Gorham CEO, IBANZ

22. Opinion

10. Intermediated distribution: How intermediaries can prepare for CoFl

20. Q&A with

14. Summer storms hit IAG profit

24. Vero hires experienced technical underwriter

30. Commercial crime on the rise: NZI

33. JAVLN acquires OfficeTech document management solution

42.

CoverNote is the official publication of IBANZ and is distributed FREE on a quarterly basis (March, June, September, December) to members throughout New Zealand and associated companies. Additional copies are available at a cost of $7.50 per copy, or 12 month (4 issues) subscriptions at $30.00, inclusive of postage and packaging. The articles or opinions featured within this magazine are not necessarily the opinions of the publishers or IBANZ, and they do not accept responsibility for the content of articles featured within the publication. No part of this publication may be reproduced without the written permission of the publisher. The publishers do not accept responsibility for loss or damage to unsolicited photographs or manuscripts.

IBANZ enquiries should be made to: Melanie Gorham, Chief Executive, IBANZ. Email: mel@ibanz.co.nz

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ISSN 2815-9268

4. PSC Connect NZ investing in people and tech

18. AIG names new head of Australia and New Zealand

26. Cyclone Gabrielle insured losses pass $2 billion

28. Suncorp New Zealand profit hit by rising claims

Pots, pans and stoves cause 300 fire claims per year

32. Cyber insurance specialist launches in New Zealand

Honesty is the best policy

Jacob Hewitt

is changing.

IBANZ,

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PSC Connect NZ investing in people and tech

PSC Connect is going from strength to strength, growing its affiliated broker network, investing heavily in new tech and additional staff.

As the PSC Insurance Group continues with its impressive growth in Australia, the UK and Asia with over $2.5b in gross premiums, their New Zealand business is no different enjoying over 15% growth in the last 12 months.

“There’s a lot of satisfaction in working with and supporting our existing Member Brokers in building their own quality broking businesses and assets for themselves “ says Director Dave Penfold

“Our business has been with PSC Connect since we started in 2016 and in that time, with the support of Dave and the wider team, we’ve been able to grow our business to a team of ten Insurance experts and specialists. PSC has the ability and contacts to access underwriters both locally and globally to make sure our

clients are looked after, a huge asset to our business and clients.” Says Jason Bayly of JB Insure.

Three new Member Brokers have recently joined the network including Ben Pattinson and his business Insurance Hub NZ Ltd based in Mangawhai, Paul MacKay of Waimea Insurance Brokers based in Nelson and Larrissa Wade and her new business Gulf Island Insurance Ltd based on Waiheke Island.

“We’re also receiving a lot of enquiries from quality brokers wanting to start out on their own, but who are concerned about managing their own compliance and regularity obligations, for which we provide full support”

This growth has seen two new staff added to the team this year, Lance Ashton as Broker Services Manager and Olivia Chisholm as Southern Regional Manager, and a soon to be announced key role of National Sales Relationship Manager.

PSC New Zealand is implementing some market

Nikayla Glenn, The Peoples Insurance, pictured with Dave Penfold, PSC Connect NZ Director and Tony Walker, PSC Connect Network NZ/AUS CEO, receiving the 2023 Rising Star award at the 2023 PSC Connect Conference.

leading technology initiatives in the near future which will include, amongst other things, a platform which will provide multiple quote/bind options giving our broker network the ability to offer a professional presentation and quality advice around these options to their clients.

“We’ve built incredibly strong relationships with our technology partners” says Broker Services Manager Lance Ashton “and we’re excited about how these mutually beneficial relationships are going to further enhance the support we can provide to our network”

PSC NZ have also recently opened a third office, located in Christchurch. “This is another example of the investment we are making to allow us to achieve the growth we committed to over the next 4 years and beyond” says Penfold.

Flood impact flows on for the insurance industry

The weather may have subsided, but the summer’s events will have a lasting impact on the NZ insurance market, writes

Helen Gilby

With the claims process underway, the long-term impacts of Cyclone Gabrielle and the Auckland Anniversary weekend floods are affecting brokers and their clients. As underwriters reevaluate their coverage and exposure in impacted areas, the long-term outlook and availability of insurance is only starting to be understood for both the domestic and business markets.

Aotearoa New Zealand is no stranger to large-scale insurance events and the changes this causes in both the short and long-term insurance market, and the way brokers can serve their clients. Brokers are currently faced with the challenges of supporting clients while they navigate active claims and understand the response from underwriters.

Cyclone Gabrielle and the Auckland flood events are the two biggest weather events in New Zealand history, occurring only weeks apart. “In terms of the scale of what insurers are dealing with, it is unprecedented,” says Sarah Knox, disaster response manager for the Insurance Council of New Zealand (ICNZ). Over 100,000 claims have been received in response to these two events, with a third of these settled, as of the start of June.

With settlement progress comes the analysis of longterm underwriting changes to flood and weather-related events and what that means for insurance consumers.

Central and local government decisions and actions are still to be finalised, which will also affect policy underwriting. Similar to the Christchurch and Canterbury

earthquakes, land category allocations by local government bodies will impact policies and coverage long term. Much of this impact is only starting to be understood as local governments make decisions on land categories and what long-term plans will be to reduce future flood risk.

With so many aspects still uncertain, Knox speaks highly of how local insurers and their teams have reacted so far to these events and the uncertainty in the market.

“Regardless of the scale, I think we're doing really well, and I'm really pleased with the progress so far given there's so many uncertainties with the land categorisations that the government and local councils have.”

Brokers in both the domestic and business markets are noticing the price increases to consumers. Brokers are having to work harder in the current environment when communicating with clients.

Holt further explains the difficulties faced by many: “It's been a tricky market. For us, we really just have to manage client expectations. So that's getting on the phone and speaking to a lot more clients and explaining what’s happening in the market.”

Looking to the long term, Holt advises that ‘rate increases are going to be here to stay for a while yet”.

In the future, maintaining the scalability of resources within the insurance industry is also important to maintain client support during major events. Holt explains that looking after insurance teams’ wellbeing should also be part of response planning.

“Wellbeing of the staff is really up there as well. That’s top of mind when we're looking at it all and managing these events as well.”

As teams are working through the unprecedented number of claims and complex ongoing insurance issues that occur as a result of major events, everyone in the industry should be reviewing their own processes and how they contribute to the settlement process.

“I think people are learning some lessons out of this,” says Holt, as companies evaluate their ongoing operations and how to best support their clients long term. As well as changes in underwriting in response to these extreme weather events, legislation changes to EQC Act have also come into effect.

Claire Holt Financial adviser from Share NZ

Brokers have started to notice the changes impacting clients and their policies as underwriters reassess the risk profile of not only Auckland and Hawke’s Bay, but Aotearoa New Zealand as a whole.

With climate change creating larger, more frequent weather events, our risk profile is changing. While earthquakes have always been a large risk factor for the country, more regular, large-scale loss caused by flooding and cyclones has not been as high on our risk profile.

As Claire Holt, financial adviser from Share NZ explains, “they haven't had the chance to look at the modelling for floods or cyclones in this area very much. They’ve got a lot of data on earthquakes and liquefaction, and a lot of data on earthquakes, but in terms of modelling for flooding and cyclones in this area and New Zealand, they haven't got that data to work with”.

With long-term data still being worked on, the initial response to the losses has driven price changes and, in some instances, created difficulties in gaining cover.

Similar to what happened after the 2011 Christchurch earthquakes, insurers are acting with caution. “The market really has hardened at a huge rate. The last time I saw it increase at this rate was after the Christchurch earthquake,” says Holt.

Coverage caps mean brokers and claims teams are dealing with claims that would have previously been referred to EQC. Brokers are more involved than in the past.

“Previously, people would just deal with EQC as a separate entity, and brokers wouldn't get so involved,” explains Holt.

Brokers are now faced with the task of ensuring they are getting the best deal for their client, while making sure excesses fit within both the Act or the client’s policy when it is beyond the parameters of the Act.

It’s been a challenge for staff to gain a full understanding of the changes, in the circumstances, but Holt says teams have risen to the challenge and continue to work hard, ensuring that clients are getting the right outcomes and their cover is responding in the right way.

While Cyclone Gabrielle and the Auckland flood events have resulted in immediate changes to the local insurance market, with cost impacts and a conservative outlook for risk coverage, the longer-term impact is still somewhat unknown and reliant on the long-term data being collated and analysed.

Brokers and ICNZ are aware of the impact this uncertainty can have on clients and their long-term decision-making. More than eight months after the worst weather in decades, many factors need to be accounted for so long-term strategic sustainable solutions can be offered to the market.

It's been a tricky market. For us, we really just have to manage client expectations. So that's getting on the phone and speaking to a lot more clients and explaining what’s happening in the market.

Intermediated distribution: How intermediaries can prepare for CoFl

Here’s

what brokers need to do to get ready for CoFl,

according to Andrew Horne, Nick Frith, and Jane Standage at MinterEllisonRuddWatts

The incoming Conduct of Financial Institutions (CoFI) regime, introduced by the Financial Markets (Conduct of Institutions)

Amendment Act 2022 (CoFI Act), is primarily concerned with licencing and regulating the conduct of financial institutions (i.e. licensed insurers, banks, and non-bank deposit takers) in relation to their consumer business.

However, it will also change how intermediaries distribute products for those financial institutions. For the insurance industry, brokers and other intermediaries can expect greater oversight and expectations from insurers in relation to conduct.

The CoFI regime does not directly apply to brokers and intermediaries (except in the case of incentives). However, insurers, as financial institutions, are required to:

• Set and maintain a fair conduct programme which provides for the distribution methods they use (including distribution methods that involve intermediaries) to operate in a manner that is consistent with the fair conduct principle; and

• Regularly review whether the distribution methods are operating in a manner that is consistent with the fair conduct principle, and ensuring deficiencies are remedied within a reasonable time. This will have flow through effects for insurance intermediaries, and their relationships with insurers.

In addition, the CoFI regime prohibits intermediaries from receiving certain sales incentives.

This article sets out some of the matters which intermediaries should be thinkingabout in advance of the regime coming into force. In particular, this article examines the key points for intermediaries in the Financial Markets Authority (FMA)’s recent guidance on intermediated distribution (Guidance).

Am I an intermediary?

Under the CoFI Act, a person will be an intermediary if:

- the person is involved in the provision of a relevant service or an associated product to a consumer, meaning either:

- arranging for the service or for the acquisition of the product; or

- giving regulated financial advice in relation to the product.

- the person is paid or provided with a commission or other consideration in connection with that involvement; and

- the commission or consideration paid or provided (directly or indirectly), by or on behalf of the financial institution providing the service or the product the intermediary is involved with.

Relevant service, in relation to insurance, means “acting as an insurer”, and associated product means the associated contract of insurance.

For the purposes of the CoFI Act, a consumer is:

- policyholder who enters into the contract of insurance wholly or predominantly for personal, domestic, or household purposes (including any beneficiary or person who is offered such insurance);

- a policyholder under a contract of insurance that provides for life insurance or health insurance (or both); or

- a person who benefits from a contract entered into by a policyholder in order to provide insurance cover for one or more persons, provided the person has the benefit of the cover wholly or predominantly for personal, domestic, or household purposes.

An ancillary point to note in relation to paragraph (b) is the absence of a reference in relation to life insurance or health insurance to “personal, domestic, or household purposes”, meaning that for those types of insurance when a policy holder is considered a “consumer” can be wider than is the case in ordinary parlance.

What can I do to prepare?

Ahead of the CoFI regime, insurers and intermediaries will need to consider carefully their relationship, bearing in mind that a distribution system needs to work for both parties. Intermediaries should:

Understand the insurer’s obligations in making the fair conduct programme

The CoFI regime requires financial institutions to set and maintain a fair conduct programme which provides for the distribution methods they use (including distribution methods that involve intermediaries) to operate in a manner that is consistent with the fair conduct principle.

The FMA states that treating customers fairly is a shared responsibility of financial institutions and their intermediaries. Ahead of the regime, the FMA expects financial institutions and intermediaries to collaborate on constructing the distribution section of the fair conduct programme. In our view, both will need to consider carefully how their relationship may need to be recalibrated to operate effectively and compliantly for both parties once the CoFI regime comes in to force.

Intermediaries will want to understand the financial institutions’ obligations because, of course, the insurers must operate in compliance with the CoFI regime, and can be subject to substantial penalties for failing to do so. So the financial institutions will be changing the way they are willing to work with intermediaries. At the same time, intermediaries will need to ensure that their roles and responsibilities under the resulting fair conduct programme are practical and achievable. Intermediaries should consider what roles and obligations it is willing to have responsibility for, the level of compliance burden it feels is warranted, including in relation to oversight, reporting and ongoing training. Where the balance between the interests of the two finally lands will be at least in part a matter of commercial negotiation. In constructing a fair conduct programme, financial institutions and intermediaries should consider the following:

- the likely consumers of the products;

- what distribution methods are appropriate and why; the roles and responsibilities of the financial institution, and the intermediary;

- how distribution arrangements will be managed or recorded;

- what processes, controls and data areneeded; and

- what product information, training or accreditation will be provided.

Intermediaries and financial institutions are also expected by the FMA to collaborate (to varying degrees) on establishing a framework by which to review the fair conduct programme, and remedy any deficiency. In undertaking this exercise, intermediaries should consider the following:

Risk-based approach

The FMA has stated in its Guidance that financial institutions should take a riskbased approach to setting controls around distribution arrangements. The

Guidance also sets out that a high compliance burden on intermediaries should be avoided. For example, the FMA does not expect constant surveillance of intermediaries or supervision of the intermediaries’ compliance with the financial advice provider (FPA) regime. And if financial institutions do have such contractual powers, that may in future be argued to imply a duty of care in favour of the underlying customers, in the event of failures by the intermediaries. So the balance needs to be carefully considered.

Intermediaries holding a FAP licence will already be subject to complementary conduct obligations under Part 6 of the Financial Markets Conduct Act 2013 (FMCA) and the Code of Professional Conduct, and of course direct supervision by the FMA. The Guidance acknowledges that these intermediaries pose a reduced level of risk to consumers because they are already demonstrating a prescribed level of compliance when distributing products and services.

We consider that intermediaries which are FAPs, and the financial institutions using them, can therefore legitimately take the view that a lower level of controls is warranted in relation to their distribution arrangements, than in relation to those intermediaries that are not themselves regulated.

Roles and responsibilities

A financial institution is required to have clearly defined roles, responsibilities and accountability arrangements in relation to identifying, monitoring and managing risks associated with conduct that fails to comply with the fair conduct principle.

In practice, what roles and responsibilities are taken on by an intermediary will vary. For example, if an intermediary is a licensed FAP, it may be responsible for assessing the suitability of the product for the consumer. In some cases, responsibility may be shared.

In relation to product information, the FMA expects that financial institutions will be responsible for providing product information and training. For intermediaries who are FAPs, this can take into account the standards of competence, knowledge and skill that they must meet under the financial advice regime.

Review framework

Financial institutions are required to include in their fair conduct programmes effective policies, processes, systems and controls for regularly reviewing whether distribution methods are operating in a manner consistent with the fair conduct principle.

Financial institutions are encouraged in the Guidance to take a risk-based approach to the frequency and the intensity of the review. The FMA has made clear that it does not expect constant surveillance of intermediaries, or monitoring of individual actions. Intermediaries can therefore expect, depending on the perceived risk of the distribution arrangement, a degree of sample-based monitoring.

Intermediaries should expect financial institutions to ask them to report key metrics (such as claims, loss ratios, complaints, cancellation rates) to the financial institution in order to allow the financial institution to assess whether

the distribution method is compliant with the fair conduct principle.

The review required is in relation to how the distribution method supports the fair conduct principle. However, financial institutions may wish to combine this with a review of the performance of the intermediary with other obligations under the distribution arrangement.

Remedying deficiencies

Financial institutions also required to include in their fair conduct programmes effective policies, processes, systems and controls for ensuring any deficiencies in the operation of its distribution methods are identified and remedied within a reasonable time.

The FMA has stated in the Guidance that this is not a ‘one size fits all’ approach. However, intermediaries can expect consequences from financial institutions in relation to non-compliance with the fair conduct programme, or the CoFI Act more generally. For example, a financial institution may wish to include non-compliance with the fair conduct programme as a material breach in relation to the distribution agreement.

A financial institution is required to have clearly defined roles, responsibilities and accountability arrangements in relation to identifying, monitoring and managing risks associated with conduct that fails to comply with the fair conduct principle.

Review contractual agreements

The Guidance sets out that contractual arrangements between the financial institution and the intermediary is good practice. Intermediaries can therefore expect financial institutions will seek to impose a distribution agreement, or amend the current distribution agreement to include new provisions for the incoming CoFI regime.

The distribution agreement should clearly record the expectations of each party in relation to the distribution section of the fair conduct programme.

Commissions

The CoFI regime introduces a prohibition on certain sales incentives. An incentive will be prohibited if a relevant person’s entitlement to the incentive, or the nature or value of the incentive, is determined or calculated in any way by direct reference to a target or other threshold that relates to the volume or value of the services or products. In relation to intermediated distribution, the relevant persons are the intermediary itself (in relation to commissions by the financial institution) or employees of the intermediary involved in the provision of the financial institution’s relevant services who have direct contact or act on behalf of one or more consumers (in relation to commissions by the intermediary to employees).

Financial institutions and intermediaries will accordingly need to adapt the distribution agreement to set out a compliant commission structure.

We also consider there may well be benefit to setting out and agreeing when a commission is payable and when an intermediary is entitled to retain its commission (including, for example, in the event of a refund of premiums).

Assurance

The distribution agreement should state whether the intermediary has a contractual obligation to comply with the fair conduct principle in the CoFI Act, or the fair conduct programme of the insurer. The distribution agreement should set out what assurances and/or indemnities are given by the intermediary in relation to compliance with the fair conduct programme.

The FMA notes in its Guidance that a formal attestation or audit from an intermediary in relation to compliance with the fair conduct programme “may” not be necessary (but is one tool by which financial institutions can ensure compliance). In our view this is a matter for the parties to decide what is appropriate in the context of their relationship.

Remedying deficiencies

Deficiencies may need to be remedied by either the intermediary or the financial institution through, for example, additional training or through changing the service or product design. Intermediaries and financial institutions therefore need to ensure that the recorded arrangement is flexible enough to allow for introducing new remedies for identified deficiencies.

Review internal policies

Intermediaries will need to consider what internal policies, systems and processes will be needed in order to meet the expectations set out in the financial institution’s programme.

In particular, intermediaries will need to ensure that their policies, systems and processes are compatible against each of the fair conduct programmes for each of the financial institutions that they work with.

We accordingly recommend that intermediaries will need to carry out a gap analysis as between each of the resulting fair conduct programmes in order to ensure that its internal policies, systems and processes cover the requirements. Where possible, intermediaries may aim to align each of the fair conduct programme requirements across the financial institutions that they work with. However, they will need to consider carefully their competition law obligations before sharing these internal policies and processes with the financial institutions as part of the collaboration process.

It will be clear from the above that adapting to the new CoFI regime will require the commitment of substantial time and resources, by both financial institutions and the intermediaries they work with. It may well involve redefining what have been long-standing relationships. Both financial institutions and intermediaries may well find that they want to reduce the number of parties they deal with to keep the negotiations and ongoing relationships manageable.

As a result it will be important to start early on the process of working together to find an answer which will be acceptable for both parties to a distribution arrangement. We would recommend a well-planned and carefully thought through approach – which should involve intermediaries making sure they understand the CoFI regime obligations of the financial institutions they deal with.

Summer storms hit IAG profit

IAGNew Zealand saw its annual profit fall by 80% due to the impact of the severe summer weather.

The New Zealand division of Australian insurer IAG reported a profit of A$44 million (NZ$47.6 million) for the year ended June 30, down from A$220 million a year earlier.

IAG reported that there were three times as many weather-related claims in the 2023 financial year compared to the year prior, with 50,000 claims for the Auckland anniversary weekend floods and Cyclone Gabrielle.

As of August 21, about 57% of the 50,000 claims were resolved from the weather events, including 90% of personal motor claims and 63% of content claims. Most of the rest of the claims are set to be resolved by the end of the year, the company said.

NZ natural perils took their toll on the insurer’s bottom line in the 2023 financial year. Heavy rain on the East Coast in July 2022 came to A$57m, the Auckland rain and floods reached A$216m, and Cyclone Gabrielle came to A$68m.

The insurer’s NZ division, which owns the State, AMI and NZI brands, saw its gross written premium grow by about 12% to $3.6 billion over the year, a larger increase than the prior year. The GWP increase was largely driven by premium rate increases.

IAG New Zealand chief executive Amanda Whiting said the 2023 financial year was “challenging” for many New Zealanders, with the Auckland anniversary weekend floods and Cyclone Gabrielle the second and third largest loss events ever in NZ.

The severe weather also “significantly impacted” IAG New Zealand’s insurance margin, which fell from 16.8% in 2022 to 13.5% in the 12 months to June 30.

The lower margin reflected higher claims and reinsurance costs and a “lag” in the earn-through of premium increases, IAG said.

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Sue Blick: a resilient and compassionate leader

HUMANS of

SueBlick of Christchurch has been in the insurance industry just shy of seven years, and when this year’s major weather events hit parts of Aotearoa, New Zealand, she knew exactly how NZI’s affected customers would be feeling.

Having previously worked in claims for the Earthquake Commission (EQC), after the tumultuous 2010/11 Canterbury earthquakes, and now specialising in sales at NZI, Sue says these combined experiences have cemented the crucial role that insurance plays in protecting our customers and communities.

“We need to ensure we get it right for our customers from the get-go – from the time they join us or lodge a claim in their time of need - through to the settlement of that claim,” she explains.

Instead of succumbing to fear and despair during the tough years that followed the Canterbury earthquakes, Sue channelled her energy to make a positive difference in the lives of those affected, including her own team members.

“The earthquakes rocked our community to its core, and my team was managing hundreds of complex cases. I remember many of our customers facing real hardship, and my job involved helping them get through this time, listening to them, and managing their claims with compassion.”

From one natural disaster to the next

Sue, now National Manager – Personal Lines, and based at NZI’s Christchurch office, says helping people comes naturally to her and is an affinity she’s had from a young age: “It’s certainly an attribute that’s helped me through several challenges during my career, especially when dealing with complex claims.

“I felt for the people of Canterbury after the 2011 earthquake because no one had experienced a natural disaster of this type in their lifetimes – including me.”

Sue says it’s been another challenging time for insurers after this year’s Auckland Anniversary Floods and Cyclone Gabrielle: “We continue to move at pace to support our customers by working through the huge volume of claims from this summer’s events.

“Unfortunately, some claims are complex to resolve, especially where there has been extensive land damage –and my heart goes out to these customers.”

A leader in the making

Before NZI and the EQC, Sue was in the banking industry, working as a regional manager for Westpac in sunny Nelson, and after that in Christchurch.

“I got into banking at the tender age of 18 straight after graduating from Lincoln High School,” she says.

“I didn’t even consider university back then, but I was an avid learner and studied banking and finance part time, as

well as studying a Diploma in Business Studies during my 20s.

Sue was chipping away at her diploma for six years while working full-time at the bank when her manager at the time offered her the opportunity to do a leadership course.

“During my course I realised my passion for leadership and mentoring people,” she says.

With her Diploma and leadership course under her belt, Sue felt she had learned the intricate dynamics of management, and her own desire for self-improvement propelled her quest to be a great leader.

“I’m forever grateful to my manager at the time because he saw my leadership potential and gave me the opportunity to grow and learn from him as well.”

A new challenge

Earlier this year NZI reviewed the way its personal lines business was set up to best suit its broker partners, and to deliver on its strategy.

This evolution of NZI’s operating model saw its Personal Lines sales and underwriting teams come together to support specific regions, a move which Sue thinks will enhance collaboration with their commercial teams and better support their regional brokers and mutual customers.

"The changes are a significant milestone for us and will benefit our broker partners because it better aligns our sales and underwriting teams to be more regionally focused.

“We’re aiming to change our broker experience for the better because at the end of a broker is a customer, and that’s important to us.”

Finding a balance

Sue believes that true leadership is not about personal accolades but rather empowering others to rise above adversity and learning to be resilient.

Outside of work Sue loves walking her dog, Kevin, a pugterrier cross (pictured with Sue), gardening, and nurturing her collection of bonsai trees. She also enjoys travelling with her husband, Greg, with a trip to Egypt next on the bucket list.

Sue says she encourages her team to think about their own wellbeing and work-life-balance to ensure they are making time for the things that give them joy. She’s a firm believer in being “kind to yourself.”

Sue says NZI is an innovative and customer-focused organisation and she’s excited about her new role and the opportunities ahead.

“I’ve got a talented team, and our ongoing commitment to delivering a positive experience for our brokers while ensuring we continue to provide peace of mind for our customers, is at the heart of everything we do.”

AIG names new head of Australia and New Zealand

GrantCairns has been appointed chief executive officer of AIG Australia, also becoming the insurer’s head of Australia and New Zealand.

He will report to Chris Colahan, the recently-appointed regional president for AIG Asia Pacific.

Cairns joins AIG from Chubb where he was head of property and casualty for the Asia Pacific region.

Before that, he was private equity industry practice leader for Chubb International and head of financial lines for APAC.

With more than 22 years of insurance experience across multiple regions including Asia, Europe and the Pacific, AIG said Cairns brought “deep commercial, operational and strategic expertise” to the role.

Colahan said: “Grant is a strategic leader with extensive underwriting expertise across multiple lines, with established relationships and a deep understanding of the Australian and New Zealand market.

“He has a proven track record for delivering profitable growth, driving customer service excellence, and aligning high-performing teams. We are thrilled he is joining AIG.”

Cairns added: “I’m delighted to be joining AIG and look forward to working with the Australian and New Zealand team to continue to drive sustainable growth. AIG is a world-class business with highly talented colleagues skilled at solving complex problems and committed to delivering quality outcomes. I can’t wait to see what we achieve together.”

Cairns will start on November 1, based in Melbourne.

Jacob Hewitt, Vero Insurance engineer and technical underwriter

Vero Insurance’s new engineer and technical underwriter Jacob Hewitt talks to Covernote about the changing construction market and how the insurance market is evolving to handle more complex risks.

You've been in the market for 17 years. What have been the biggest changes in the insurance and construction sectors between now and then?

JH: Technological advances in the construction industry across this period including modular buildings, remoteoperated vehicles, scanning and modelling technology to name a few as well as the boom in renewable energy technologies. These advances have enabled construction projects to proceed at faster rates with a greater complexity of programme and interaction between critical path items than ever before.

In terms of the insurance market, the cycling between hard and soft markets culminated in a withdrawal of capacity from the global construction & engineering market around 2018. This signalled the end of a prolonged soft market and within the next few years, it hardened significantly, with reinsurers driving large rate increases and narrower treaty terms which flowed into the up-front insurance markets.

You have been hired to help Vero and its construction clients protect themselves against new and emerging risks. Which risks have come to the fore in recent years impacting NZ businesses?

With climate change ever-present and the increasing frequency and severity of natural catastrophe events, weather-related risks are at the forefront of construction clients' minds.

2023 has seen the January floods and Cyclone Gabrielle – two of New Zealand's largest CAT events. In addition to normal loss expectancy within the market, this presents significant financial and non-financial risks for New Zealand businesses and projects.

Is underwriting capacity strong enough in this area, or is there more for insurance companies to do?

Underwriting capacity in the construction & engineering market has contracted globally for the past few years, which coincided with the end of a prolonged soft market in specialty risks and increasing interest rates globally.

Alternative capital that was otherwise flowing into reinsurance markets switched direction and started flowing out back into the bond markets and other investment vehicles.

Insurance companies can provide stronger technical expertise in the construction & engineering product suite and maintaining underwriting discipline are key to

reinsurance markets re-gaining confidence and capacity re-entering the market.

This, in tandem, with greater granularity within NATCAT modelling in secondary perils such as flood, insurance companies can improve visibility across their portfolios and make more informed decisions around risk allocation and capacity deployment.

Are any new insurance products emerging in this area to help construction clients guard against these new and emerging risks?

There is a growing market in non-traditional insurance and reinsurance products to help clients manage climaterelated risks such as NATCAT bonds and parametric coverages. Albeit these products are more suited to larger entities such as government clients. A wider range of renewable energy construction products wouldn’t go amiss in the New Zealand market either.

How can brokers help their clients navigate new and emerging risks linked to the adoption of new technologies?

New technologies are constantly emerging within all sectors of the economy,and keeping up with these developments is key to understanding clients' risk profiles in order to better manage and mitigate risk.

What other trends are you noticing in the construction space that brokers should be aware of?

In the large infrastructure space in New Zealand we have seen alliancing delivery models dominating over the past 10 years. However, with an election pending and tighter central government budgets, I predict we will see the re-emergence of design & build and public-private partnerships as a preferred method of delivery. These models bring their own unique risks and challenges. What are the main challenges for the NZ insurance market in the year ahead?

The major challenges are continuing to deploy capacity to our clients whilst maintaining underwriting discipline in an environment of sharply increasing reinsurance costs from the treaty market off the back of the 2023 CAT events. What are the opportunities and what gives you cause for optimism?

There are always opportunities in any market environment. We have seen a significant uptick in largescale infrastructure projects in the pipeline and increasing investment in renewable energy.

Honesty is the best policy

It is common knowledge that the law requires an insured to be completely truthful when seeking to claim under an insurance policy. In the recent High Court decision of Polladio Holdings Limited v The New India Assurance Company Limited [2023] NZHC 1147, the court reinforced the strictness of this obligation.

On 20 November 2019, a hailstorm occurred in the vicinity of the insured’s commercial premises. The insured signed a claim form seeking cover for alleged hail damage to the roof of its commercial premises. The insurer received the claim form on 11 September 2020, some 10 months after the hailstorm.

Statements in support of the claim

Under cross-examination, the insured was shown a letter he sent to his insurance broker on 16 July 2020 saying he didn’t know about the hail damage until his builder discovered it a few weeks before the date of the letter. He confirmed this was correct.

However, under cross-examination, the builder confirmed he had been contracted by the insured to check the roof and stop leaks initially on 25 November 2019, some days after the hailstorm. The implication of this was that the insured knew about the alleged hail damage then and not later in mid-2020 as he stated.

In light of this, the insured was recalled to give further evidence. The court found the further evidence not particularly helpful. The insured ultimately accepted that the statement made to the insurance broker on 16 July 2020 that was relayed to the insurer was untrue.

The policy contained the usual strict obligations to be truthful. These included:

8 GENERAL CONDITIONS

8.1 Comply with the policy

You must meet the following conditions BEFORE we are obliged to pay you:

8.1.1 You must comply with all the policy terms, and

8.1.2 Provide true statements and answers when you:

....

• make any claim under this policy.

Dishonest or fraudulent claims

If your claim is dishonest or fraudulent in any way, we

may decline your claim, wholly or partially and, at our discretion, declare that this policy is unenforceable from the date of the dishonest or fraudulent act.

The court relied on these terms to find that the insurer was entitled to decline the claim because of the insured’s untruthfulness.

Exclusion for ‘marring’

On the facts, the court also upheld an exclusion in the policy that excluded cover for any marring damage. The word ‘marring’ was not defined in the policy, so the court applied its dictionary meaning which is:

....detract from or impair the perfection of, disfigure.

Based on the expert evidence, the court accepted that much of the roof had suffered minor indentations only that did not detrimentally affect the roof’s utility or longevity. The court found as follows:

[39] Marring refers to blemishes that detract from the perfection of the item insured. It conveys the idea of superficial damage affecting the appearance of an item, which impairs aesthetics rather than functionality. In my view, the marring exclusion contained in the policy applies to the indentation damage to the roof from the hail storm.

As far as we are aware, this is the first decision by a court in a common-law country on the application of this exclusion.

Keegan Alexander acted for the insurer in this case.

Please contact us if you require any further information.

Crossley

Gates Frank Rose cgates@keegan.co.nz

frose@keegan.co.nz

Vero hires experienced technical underwriter

VeroInsurance has appointed experienced engineer and technical underwriter Jacob Hewitt to its business property team.

The firm said the hire would bolster the firm’s capabilities amid the emergence of new and complex risks.

Vero said unexpected costs associated with malfunctions in advanced equipment and unforeseen delays brought on by the integration of cutting-edge newto-market technologies presented new challenges for the market.

Hewitt, who has worked in the industry for 17 years, joins as Vero's construction and engineering portfolio manager. His responsibilities will include portfolio management, proposition and market development, and leadership

within the Vero construction and engineering team.

Vero executive manager of business property Nick Meister said Hewitt would add local and international experience across construction and engineering insurance and reinsurance portfolios.

"We're thrilled to be welcoming Jake to the team,” Meister said. “His appointment brings our business team world-class technical expertise and a deep understanding of the ever-changing risk profiles and needs of our construction sector customers.”

“Hewitt’s impact will resonate within our construction and engineering portfolio and across the wider business area,” he added. “His passion for excellence and innovation aligns perfectly with Vero's mission to provide leading services and solutions to our brokers and customers.”

IANZ Awards

Simply Outstanding

Congratulations to all the winners at the 2023 Insurance Advisernet Awards.

We celebrate your excellence. Through thick and thin, you know what it means to give advice you can trust and great service.

Thank you for all that you do. We can’t wait to see what you achieve next!

Funder of the year

IQumulate Premium Funding

IANZ Insurance Person of the Year

Harry Kim – Ando Insurance

IANZ Insurer of the Year

Delta Insurance

IANZ Emerging Broker of the Year

Clarity Insurance Brokers

IANZ Broker of the Year

Sherpa Brokers & Advocates

IANZ Hero’s Award

Ben Ruthe

Chairman’s Award

Kylie Vickerman

Cyclone Gabrielle insured losses pass $2 billion

Insurance industry loss estimates from Cyclone Gabrielle have surpassed the $2 billion mark according to data provider PERILS.

Losses have hit $2.018 billion, according to the latest data from the research group, up from a previous estimate of $1.925 billion in May and $1.543 billion at the end of March.

The updated estimate is based on PERILS loss data by postcode and property life of business from across the NZ insurance industry.

About 54% of the losses are personal lines property losses, while 46% are commercial lines losses, according to the data provider.

Cyclone Gabrielle ravaged New Zealand in February shortly after the damaging North Island floods, which also cost the insurance sector nearly $2 billion ($1.995 billion).

The two catastrophic weather events caused insured losses of about $4.013 billion, according to PERILS.

PERILS Asia Pacific head Darryl Pidcock said: “According to the Insurance Council of New Zealand, the largest industry loss on record from a weather event in New Zealand prior to 2023 was $171 million.

“The total loss from Cyclone Gabrielle and the North Island Floods, currently estimated at $4,013 million, therefore highlights the extraordinary scale of the two events occurring so close to each other.”

“The last six months have been very challenging for policyholders and insurers given two such large events impacting the North Island. We hope the availability of our detailed loss and exposure data can support the industry’s efforts to better understand atmospherical risks as it works closely with policyholders, communities, and government in the recovery of the affected areas,” Pidcock added.

PERILS will provide a further update on Cyclone Gabrielle industry losses on February 17 next year — the one-year anniversary of the natural catastrophe.

Suncorp New Zealand profit hit by rising claims

Suncorp New Zealand reported a post-tax profit of $115 million for the year to June 30 — a 30% fall from the previous year.

The company said significant weather events, a more than 50% increase in natural disaster claims costs, reinsurance increases and claims inflation led to a general insurance profit of $65m, down 56% on the previous financial year.

The general insurance result includes intermediated Vero Insurance and Vero Liability and direct business AA Insurance, a joint venture with the AA.

Suncorp said the reduced general insurance profit was partially offset by the strength of its life insurance business.

Despite the profit slump, the group said it remained resilient and was confident in continued top-line growth.

Suncorp New Zealand CEO Jimmy Higgins said the group’s diverse portfolio of brands protected it during uncertain times.

“Suncorp maintains a strong reinsurance program and good capitalisation, which has helped the business support customers, particularly through the events of the past six months,” he added.

“This result has been heavily impacted by the recent large-scale weather events, in addition to some smaller but impactful rain events throughout the year. So far, we’ve paid out to customers more than 66% of the 32,000 claims from the North Island floods and Cyclone Gabrielle events this year, and all our efforts remain on supporting our customers back into their homes and businesses.”

The significant weather events in New Zealand have prompted Suncorp NZ to purchase additional reinsurance coverage.

Higgins said the risk landscape has shifted in the country following last summer’s events.

“Prior to 2023, New Zealand was seen by global reinsurers as having earthquake risk, with flood and cyclone risk here not fully understood,” Higgins added. “Following these events, reinsurers no longer see New Zealand as low risk. The natural hazard models need to be recalibrated to account for the additional risks of flood and cyclone and, until those risks are properly understood, and the models recalibrated, our global reinsurers will price for that risk and uncertainty.”

Suncorp Group made changes to its reinsurance programme in July. The company said the changes put

it in a strong position to achieve “the optimal balance between the cost of the program and acceptable levels of earnings and capital volatility whilst keeping in mind the cost pressures impacting customers”.

Higgins said the group’s growing reinsurance costs would flow through to premiums.

He added there remained “considerable uncertainty” for people in flood-affected areas, with the insurer seeking greater clarity on land categorisations from local councils.

He added that insurers were working closely with local and central government to better understand the options for customers, including potential buyout solutions.

The Suncorp NZ boss said it was taking longer than expected to provide customers with choices and to settle claims.

“We remain committed to supporting existing customers, getting repair work completed and claims paid to impacted customers as quickly as we can.

“Lessons learned over the past year reinforce our collective responsibility, with local and central government and service providers, towards improving the resilience of New Zealand communities.

“We need to develop a coordinated and united response to where and how we build; how we protect our communities, what the national community resilience plan is and what is the long-term investment strategy the government has on infrastructure.

“This result demonstrates the resilience of our business, that we have good strong products backed by 100 years of good service and our customers are seeing that.”

Suncorp NZ said cost of living pressures on customers remained a concern as it revised its risk models and reinsurance coverage.

“We will remain focused on supporting our existing customers impacted by the recent weather events, and also ensure broader insurance protection is available to meet the needs of New Zealanders.

“We are constantly looking ahead at New Zealand’s future insurance needs, shaping our insurance offerings to ensure they’re fit for current conditions but also fit for the significant changes taking place in the insurance market. These changes are due to the impact of recent events which have redefined how we view natural disasters and the potential impact of a changing climate,” Higgins added.

Commercial crime on the rise: NZI

Auckland and Waikato are the country’s top spots for ram raids and commercial crime, according to data from NZI.

Insurance claims for commercial crime rose by 26% last year, with Auckland bearing the brunt of this increase. Of the 3,698 commercial crime claims received by NZI, 37% were in Auckland.

This put Auckland well ahead of Waikato's 18%, with Canterbury at 12%, the Bay of Plenty at 8%, and Wellington at 7%.

“While population will no doubt factor into this, it’s clear that businesses right across the country are suffering from an increase in crime, particularly burglary,” says Garry Taylor, executive general manager at NZI.

Burglary has remained the most common type

of commercial crime claim for the past five years, accounting for 75% of crime claims in 2022 (2,773 claims).

Auckland again tops the regions for burglary claims, but the Bay of Plenty had the second highest number of burglary claims in 2022, with 288 claims (after Auckland at 508), despite being ranked 8th overall for crime claims.

“Anecdotally, the addition of vape products in dairies appears to increase the risk of burglaries,” said Taylor. “Over the past decade, security measures for cigarettes have been developed and improved and are now at generally good standards. However, vaping products, which are newer to New Zealand, tend to have fewer security measures, making them common targets for thieves.”

Ram raids soar

Ram raids also featured in insurance crime claims, with Auckland (38%), Waikato (25%) and Canterbury (10%) the top three targets in 2022, followed by the Bay of Plenty (8%). Northland and Wellington rank equally in 5th place (5% each).

In 2022, NZI received 213 ram raid claims, a 132% increase from 2021 (92 claims) and 420% above 2020 (41 claims).

“Unfortunately, we are seeing ram raids feature more often,” Taylor added. “These crimes are incredibly disruptive, and it can take a long time for businesses to recover. Often there is significant damage to the building, on top of the loss of stock. In some parts of the country, supply chain shortages have meant lead times to procure shop front glass

and tradespeople has increased.

Ram raiders tend to target branded goods and items that are easily disposable through social media – so branded clothing, surf and sports gear. Power tools and cigarettes have traditionally been stolen, but vape products are now frequent targets too.”

Retail shops continue to be targeted

Auckland (32.5%) and Waikato (26%) lead the country in retail crime, followed by Canterbury (11%), the Bay of Plenty (9.2%) and Wellington (6.5%).

Despite accounting for only 1% of total retail theft claims, Northland had the highest average cost of retail theft-related claims. Similarly, Hawke's Bay ranked fourth for average cost despite ranking eighth for total claims lodged.

Cyber insurance specialist launches in New Zealand

Cyber insurance specialist Emergence has launched in New Zealand, hiring a well-known face from the industry to lead its push from across the Tasman.

Emergence Insurance CEO Troy Filipcevic said New Zealand was always part of his long-term Strategy.

“It’s been a key goal to expand internationally and launch Emergence’s dedicated cyber insurance products into new markets.”

“Providing greater capacity and a technology solution that offers quote-and-bind functionality with full policy lifecycle capability enables New Zealand brokers to efficiently provide adequate cyber protection for their clients,” Filipcevic said.

Emergence NZ Limited has set up an Auckland office, which will be headed by insurance industry veteran Fraser Walker.

Walker has 18 years’ experience in the industry including more than a decade with AIG. His last role at the insurance group was as head of client & broker engagement for AIG Insurance New Zealand.

Since 2021, he was head of risk & insurance at Construction Cost Consultants, a role that included hosting and presenting educational sessions to broker networks throughout New Zealand.

Filipcevic said Walker’s experience and strong broker relationships would be valuable in building the brand and providing solutions for the broker market “over the ditch”.

“New Zealand will benefit from everything we’ve learned from our Australian experience, including Emergence’s 24/7 in-house incident response capability.”

Walker, who starts as Emergence NZ’s business development manager on 17 July, plans to visit brokers in the North and South Islands to outline the benefits of Emergence’s products.

Brokers can access Emergence’s cyber event protection policy for SMEs, which has limits up to $10 million, and the cyber enterprise solution and cyber excess policies, with limits up to $20 million.

Walker welcomed the chance to collaborate with a start-up.

“Brokers want consistency and market accessibility,” he said. “I’ll be doing a lot of travel, including regional and rural New Zealand, to engage strategically with brokers.

“We need to earn our stripes here, so it helps having someone local who understands the nuances of the New Zealand market and can offer our strong proposition to the market.

Cyber insurance uptake is in its infancy in New Zealand but gaining momentum.”

Filipcevic said Emergence NZ offered 100% Lloyd’s security and had a broad appetite. He signalled further expansion and more cyber services for NZ.

“We have just launched cyberSuite, a dedicated cyber advisory practice, and other initiatives are planned.”

JAVLN acquires OfficeTech document management solution

JAVLN, a cloud-based insurance policy management platform, has acquired Technosoft Solutions’ document management and workflow software, including OfficeTech.

The Australian acquisition is JAVLN’s second this year.

Technosoft Solutions, founded in 2002, assists approximately 300 brokers and underwriters in Australia and New Zealand in managing electronic files and workflow.

All Technosoft Solutions employees in Melbourne, including co-founder Irene Kendall, will be offered positions within JAVLN.

“Adding OfficeTech to our platform makes it easier for brokers and underwriters to improve document management processes, gaining extra productivity and compliance benefits,” said Dale Smith, JAVLN’s founder and CEO. “I am delighted to welcome Irene’s team and the respected OfficeTech brand to our business as we build a stronger Australian presence.”

“Smart document management is now one part of digitally transforming policy management processes which are vital to every broker’s ability to respond to cost and regulatory pressures,” says Kendall. “As a founder, I am proud to see my customers and people gain extra support and new opportunities within JAVLN.”

Do clients understand their insurance policy?

and Ida* booked flights to Queenstown for a guided hiking tour in March 2023. Their hiking tour was scheduled to begin the morning after they arrived in Queenstown.

John*

John and Ida's flight was cancelled due to poor weather while they were at the airport. They bought tickets for the only other flight to Queenstown that day to make their hiking tour on time. Their replacement tickets cost an additional $150. John and Ida bought a meal at the airport because their replacement flight departed later in the day.

John and Ida contacted the airline that day to request a refund for their cancelled flights. They also wanted the airline to cover the additional cost of their replacement flights. The airline gave John and Ida a credit voucher equal to the value of their cancelled flights.

In early April, John and Ida contacted their travel insurer because they wanted a full refund rather than a credit voucher, compensation for the additional cost of their replacement flights, and compensation for their airport meal.

The airline gave John and Ida a full refund and voided their credit.

In May, the insurer told John and Ida that they could not claim the additional cost of their replacement flights or their airport meal. The policy said the insurer would pay ‘reasonable additional expenses’ if the insured was unable to attend a ‘sporting event’ due to unforeseen and uncontrollable circumstances.

The insurer said the policy did not apply because a scenic hiking tour was not a ‘sporting event’. John and Ida challenged the insurer’s decision.

The insurer compromised on their initial decision and accepted John and Idas’ claim for airport food. The insurer maintained that John and Ida did not have a valid claim for the additional cost of their replacement flights.

John and Ida complained to FSCL.

Dispute

The key issue in John and Idas’ complaint was whether their hiking tour was a ‘sporting event’ under their insurance policy.

The insurer said the hiking tour was a ‘leisure trip’ rather than a ‘sporting event’. On this basis, the insurer said the hiking tour was not covered by their policy. The insurer said that the policy wording was clear; John and Ida had an obligation to read and understand it.

John and Ida said the hiking tour was a ‘sporting event’. They wanted $150 for the additional cost of their replacement flights.

Review

FSCL reviewed the insurance policy, and the insurer’s correspondence with John and Ida. FSCL thought the insurer applied the policy correctly. John and Idas’ hiking tour was not a ‘sporting event’ under the policy wording.

It was FSCL’s view that John and Ida should discontinue their complaint. Resolution

John and Ida accepted the preliminary view and discontinued their complaint.

Burglary claim creates coverage issues

has a fabric manufacturing business. Debra’s stock is manufactured and stored in a large factory in Wellington where she has 14 staff members.

Debra*

One evening after Debra and her staff had left work for the day, several intruders broke into Debra’s factory. One of the intruders disarmed the alarm using the alarm code, and they all rummaged through the factory and carried out a handful of tools each.

Debra got a call from her alarm company that evening about the disabled alarm (because this was unusual activity), so she went down to the factory to check everything was okay. Once she arrived, she realised there had been a break-in, so she notified the police.

The claim

Debra told her insurance broker about the burglary shortly afterwards, and her broker sent her a claim form to complete. Debra filled out the claim form but did not complete a list of stolen items, because she had not yet worked out exactly what had been stolen. Debra’s broker sent the claim form on to her insurer.

Debra’s insurer wanted to know what had been stolen during the burglary so that they could assess the claim, so Debra’s broker asked her for this information.

Debra was busy with work but began sending invoices/proof of purchases for all of her tools to her

broker, and the broker forwarded these on to the insurer. Debra also sent her broker sent a copy of the CCTV footage of the burglary, and an invoice for the repair of a window that was damaged during the break-in.

The interview

Debra’s insurer was a little confused about the size of the claim, because they had reviewed the CCTV footage and thought it looked as though Debra had claimed for more items/tools than were stolen, so they contacted Debra for an interview.

During the interview with her insurer, Debra explained that she had not yet worked out exactly what had been stolen, so she had been putting an inventory of all her tools together with her broker.

Debra’s insurer asked her to put together a list of all the stolen items only, and to provide proof of purchase for these items within one week. Debra sent invoices for the stolen items over to her broker by the deadline she was given, and the broker forwarded them to the insurer.

The insurer’s decision

The insurer, who had grown suspicious of Debra’s claim, compared the recent invoices with all of the earlier invoices / proof of purchase documents they had received from the broker. It appeared Debra was only claiming for $7,000 worth of tools, not $40,000 as first thought.

Debra’s insurer noted the discrepancy in the value of the claim and decided that Debra had dishonestly inflated the size of the claim initially. The insurer declined the claim based on a condition in the policy that allowed them to decline any claim that is ‘dishonest or fraudulent in any way’.

The complaint

Debra’s insurer did not renew her policy and she approached a new broker to help her obtain a new policy with a different insurer. The new insurer declined to offer Debra a policy after she disclosed that she’d had a previous claim declined and her policy had been cancelled.

Debra was very stressed because she no longer had insurance for her business, so she referred a complaint to FSCL with the help of a representative.

Dispute

Debra said that she had not dishonestly inflated her claim. She explained again that she believed she had been putting together an inventory of all her tools with her broker, and that she was unaware that the broker had passed on all the invoices and quotes to her insurer as part of the claim.

Debra’s representative explained that Debra had a medical condition that meant she struggled with small

details and concentration at times. In the context of the burglary, the claim, and running a busy business, there had been a misunderstanding around the inventory Debra was putting together and what items were being claimed as stolen in the burglary.

Debra’s insurer believed she had been dishonest and claimed for more items than were stolen.

Review

After reviewing all of the insurer’s internal emails about the claim, FSCL could see that the insurer had formed an opinion early on that Debra was being dishonest. The way they approached the interview with Debra was adversarial, and it appeared that Debra’s explanation about the claimed items was not considered by the insurer, because they had already made up their minds.

FSCL had some questions for Debra, because it was clear there was at least a misunderstanding in terms of what she was claiming for, and why she had sent so many invoices to her broker.

Debra explained what her understanding had been –that is, she was genuinely putting together an inventory of tools in order to establish what had been stolen, and to have a schedule for future reference.

FSCL’s view

In light of her medical condition, and FSCL’s experience dealing with Debra, FSCL decided that she ought to be given the benefit of the doubt. FSCL did not think there was sufficient evidence in this case to reach the very high threshold needed to allege fraud by the insured, Debra. This meant FSCL thought her claim should be paid, and FSCL explained this in its decision to Debra and the insurer.

FSCL also confirmed with the insurer that Debra’s policy had lapsed rather than been cancelled. The insurer wouldn’t offer to renew the policy, based on Debra’s claims history, and FSCL explained to Debra that this was fair because it was a commercial decision.

A lapsed policy is different to a cancelled policy, so FSCL told Debra that she did not need to declare that she had a cancelled policy when making future applications for insurance.

Resolution

FSCL issued a final decision on the complaint and Debra accepted it. This meant it was binding on the insurer.

INSIGHTS FOR PARTICIPANTS

It is important not to pre-judge the circumstances of a claim before having all of the relevant information, because this can lead to pre-determination.

Sometimes things may appear a certain way or leave a negative impression at first. However, it pays to keep an open mind whilst you go about gathering information, because there may be a different explanation available once you take the time to put a full picture together. You should also look out for any vulnerabilities your client may be suffering from.

Event definition in flood losses

QUESTION

Hi, We have a client whose rental home suffered significant damage as a result of the Auckland floods. The tenants vacated the property immediately and the insurer/assessor arranged strip out of the property. This property was then targeted by looters who returned twice, the first time taking the gas infinity hot water system and then later some copper piping. The insurer has accepted both secondary claims but has applied excesses to both separate thefts. The insured is not happy with this being that these losses are directly related to the original damage and the fact that the property was obviously empty due to the stripped-out nature of the home.

I have reviewed the definition of "Event" in the wording - “Any series of sudden and unforeseen events arising from one source or original cause shall be treated in this policy as if it was a single event.”

There is no time bar on this. Do you believe that these secondary claims could be considered as part of a "series of events arising from one source" i.e. the storm? These additional losses would not likely have occurred if the property was still occupied and undamaged. What is the legal position on this? Thanks.

CROSSLEY GATES

For the definition of 'event' to aggregate the otherwise 3 separate excesses, there must be a series (one after the other) of accidental happenings arising from the one source or cause.

From what you say:

1. Each of the happenings was accidental from the insured's point of view.

2. They did occur one after the other.

3. They did arise from the one cause (flood).

While the proximate cause of the intial damage was the flood, the words 'arise from' have been given a wider interpetaiton than this in some cases. This means while the proximate cause of the second two happenings was theft, those happenings arguably still arose from the flood.

Do you have a question for our experts?

Treatment of GST in claims settlement

QUESTION

I am looking for an expert opinion on the correct treatment of GST in commercial marine claims settlements using the following as an example.

The insurer is Australian based and its transactions in New Zealand are GST exempt. Claim accepted for a lost courier bag, $4,000 (incl. GST) cost of replacement, carrier compensation = $2,000 (incl. GST).

Should the settlement be calculated as $4,000 less $2,000 = $2,000 less GST = $1,739.13 less excess?

Or, should it be $3,478.26 (Gst excl.) less $2,000 (incl. GST) = $1,478.26 less excess?

The compensation being paid is in settlement of a claim for damages. The payment of damages is neither goods nor a service, hence GST simply does not apply (and therefore is often expressed as "GST inclusive, if any"). Hence GST should not be either added to or deducted from the settlement figure and neither party needs to include it in a GST return. The amount payable becomes a flat $2000, from which the excess should be deducted, as between insured and carrier. The carrier will still be liable to pay the full $2000 to its customer.

Forestry owner liability

We have a client who owns a forestry block. During recent storm events, trees fell onto power lines, causing damage.

My understanding is that in order to be legally liable, the trees need to have been found to be unhealthy or dangerous - is that correct?

Is it reasonable in your view, to consider perfectly healthy & well-maintained trees to be dangerous because of where they are planted (10-20 years previously)

Thanks for your help.

CROSSLEY GATES

Your understanding is correct.

I can't comment on whether 10 to 20-yearold trees could be unhealthy or dangerous simply because of their age. You would need to consult a suitably experienced arborist.

If so, visit iNavigator, www.inavigator.co.nz, or the IBANZ website, www.ibanz.co.nz - and let us know.

For completeness, the $4000 starting figure is also essentially irrelevant because under the carriage of goods legislation, what matters is the number of units of goods (one) for which $2000 is payable provided the value exceeds $2000 - the extent to which it exceeds $2000 is immaterial.

PAULINE DAVIES

Defence costs cover query

We have a client, a builder, who was joined to a legal case where it was ultimately found that the damage was due to incorrect engineering calculations that caused a property's foundations to slump.

Our client was found not liable by the court but incurred substantial legal fees. Our client's insurer has declined to cover the legal costs on the basis that since the insured was found not liable there is nothing for the policy to respond to.

"Therefore, defence costs are not covered as there is no cover under the policy because the Insured was not responsible for the defective design/construction works which forms the basis of this claim."

To me, this fundamentally misunderstands how defence costs cover works, as the liability policy does respond to allegations that if proved would be covered. The insurer would choose to defend the insured (and incur legal costs) and if the outcome was the client is found not liable the defence costs are still covered by the policy. They have accepted that if our client had been found liable then the policy would have responded! Can they deny coverage for the legal costs in this situation? Cheers.

STEVE JACQUES

Generally a GL policy will provide cover to defend a third party claim where it has not yet been established whether the Insured is legally liable.

Unless incurred by the insurer, for defence costs to be payable they need to be approved by the Insurer prior to being incurred, did this happen?

PAULINE DAVIES

You are correct in principle as to how things normally work, but I would be interested in the answers to two questions. The first is, why did the insurer not defend on your client's behalf? I am wondering whether the claim was correctly notified so that the insurer had an early opportunity to consider

If indemnity to the Insured under the policy had not been decided at the time proceedings were issued, agreement regarding defence costs would normally be put in place, eg. the Insured to meet defence costs until indemnity is established and provided their is cover defence costs would be reimbursed.

its position and step in, if it thought the claim would be covered in the event of liability being found. The second question is the same as Steve's - was the insurer's consent obtained to the incurring of defence costs? Presumably the answer may be related to the first issue, if the insurer was not aware of the claim.

Defective earthquake repairs cause ongoing issues

Amy's* house was damaged in the Christchurch earthquakes. She made a claim under her house insurance and her insurer arranged the repairs.

Several years later, Amy found the repairs to be defective, but her insurer declined to remedy them. After a complaint was made to the IFSO Scheme, the insurer was required to rectify the damage, During the subsequent repairs, the insurer offered Amy $17,200 to cover temporary accommodation. This was the remaining balance of her policy’s allowance of $25,000, after what had already been paid to her during the initial earthquake repairs.

Amy made a second complaint to the IFSO Scheme, saying this was not enough. She said the insurer should cover all temporary accommodation expenses incurred as a result of the substandard initial

In addition, she asked the insurer to pay an invoice for $19,564 for her representative’s services, which included meetings with the insurer and the

She also asked that the contract between the builder, insurer, and herself include a section relating to temporary accommodation. The IFSO Scheme reviewed Amy's complaint. Subsequently, the insurer offered to pay Amy the full temporary accommodation benefit of $25,000, disregarding the amount it had already paid to her. The IFSO Scheme believed this was a fair and reasonable outcome; however, Amy did not accept this offer.

Looking at the other aspects of her complaint, the IFSO Scheme did not believe the insurer should pay for Amy’s representative’s services or complaint preparation costs. Further, the IFSO Scheme could not make the insurer include any terms in the contract with the

The complaint not upheld.

An allowance for temporary accommodation is provided in some insurance policies, usually with a maximum amount claimable. The IFSO Scheme cannot require insurers to include terms in repair contracts, or pay for their customers’ representative services. * name changed

Pots, pans and stoves cause 300 fire claims per year

The stove is the most common source of appliance fires, followed by the pot and pan, according to insurer AMI.

Stoves, pots, and pans accounted for 72% of appliancerelated house fire claims last year, according to general insurers’ claims data.

“For three consecutive years, the stove has been responsible for the most appliance fire-related claims, causing around 300 fires every year,” said Wayne Tippet, AMI executive general manager for claims.

AMI data also shows appliance fire claims slightly increase during April every year, dropping in frequency from November onward.

“When the weather gets colder, more people tend to opt for fried foods, or soups, stews and curries, but our data suggests that along with these warm winter staples comes an increased likelihood of a fire breaking out.

“Stoves pose a major fire threat because of their high heat output and the highly flammable cooking oils used in pots and pans, atop them. Hot cooking oil also produces a large heat release, starting fires that are difficult to diffuse if the initial flames are not smothered immediately.

“Something so small can hugely impact people’s lives and actually cause thousands of dollars’ worth of damage.”

The toaster also appeared frequently in AMI's claims data, causing 15 fires for the insurer's customers last year.

“While the small appliance is fitted with a timer, it still pays to keep them away from anything flammable and

make sure they’re not covered or used inside the pantry.

“Some homes have roller cupboard doors where kettles and toasters are often stored and, unfortunately, in the past we’ve seen claims where toasters have set cupboard doors on fire,” Tippet added.

Appliance fires caused $10 million in financial damage in 2022, a $2 million decrease from the previous year, which saw the highest increase in financial damage from appliance fires and months of disruption for families while repairs were completed.

“It’s very likely the national COVID-19 lockdown played a part in this spike, where the majority of New Zealanders were at suddenly home using appliances and spending more time than they usually would in the kitchen.

“Another significant consideration is that damage may not be isolated to just the room where it started. Even small fires can cause widespread impacts, such as water damage from putting out the fire, and smoke damage to furniture and curtains in adjacent rooms, so it’s important to consider both home and contents insurance to ensure you are fully covered against fire risk,” says Mr Tippet.

“There are a few golden rules we can take from this data, such as never leaving pots and pans unattended on live elements or hobs and keeping things at least a metre from the heater.

“While prevention is key, everyone should have working smoke alarms in their homes and an evacuation plan.

“Busy cooks could also opt for a meal made in the slow cooker which hasn’t set ablaze for our customers so far.”

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Top producers generate between 75 and 80 percent of their new business from referrals. Centres of influences are non-client referrals sources that can help you build and maintain an overflowing sales pipeline and close more business.

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Empowering businesses with management liability insurance: In today’s dynamic business landscape, businesses face a myriad of challenges while navigating operations and management, further complicated by the everchanging economic climate.

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Though we live in a world of zero tolerance in food and beverage manufacturing, product contamination can, and does, happen. Products may have been distributed and incorporated into third party processes and products, or worse, consumed and caused harm. Consequential losses may also arise. Janene Paki will talk through a case study and adjustment process for food and beverage contamination claims.

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At Delta Insurance, we believe that protection of our environment is a social obligation for all individuals and organizations, a sentiment increasingly echoed by public and government opinion. This presentation will cover Deltas Environmental Insurance products, who should consider EIL Insurance and highlights the exposures/emerging ricks in NZ.

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Different ways to insure wages (including Dual Wages) – and what is best for your clients?

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